Public Bill Committee

[Mr Andrew Turner in the Chair]
Written evidence to be reported to the House
SCD 01 Kidneys for Life
SCD 02 Camphill Scotland
SCD 03 Hospital Broadcasting Association
SCD 04 Ian Clark
SCD 05 Northern Ireland Assembly
SCD 06 Institute of Fundraising
SCD 07 HM Treasury and HM Revenue and Customs

The Committee deliberated in private.

Examination of Witnesses

Darren Spivey, Tim Leech and David Warrellow gave evidence.

Andrew Turner: We will now hear oral evidence from representatives of the RNLI, Wavelength and the National Trust. Welcome to our meeting. I remind Members that questions should be limited to matters within the scope of the Bill and that we must stick strictly to the timings in the programme order that the Committee has agreed. I hope I shall not have to interrupt you in mid-sentence, but I will do so if I need to.

Q 5353

Gareth Thomas: Thank you very much, gentlemen, for coming and for being willing to give evidence to us. Could you set out how you think the Bill as it is currently drafted should be changed? Or is it perfect?

David Warrellow:  Speaking on behalf of the National Trust, we would want to look very carefully at the most recent amendments to the community building provisions in particular. As those provisions were previously drafted, we were expecting to be able to take advantage of this scheme at a large number of our visitor properties, engaging with visitors at those properties. The most recent change, to exclude properties where the visitor has to pay for entry, would obviously exclude a large number of our properties. We will still have some that will potentially qualify, but a much smaller number, so we are disappointed with the most recent amendment.

Q 54

Gareth Thomas: On that point, what estimate do you have of the number of properties that you will not now be able to claim on?

David Warrellow:  I would estimate that we can claim on 15 or 20 at the most—ones that are purely free for entry. Having said that, there may be other properties that could qualify on days when there is no admission charge. At the moment, for example, we participate in the heritage open day scheme in September. That tends to be over a weekend, so our properties will open for one or two days over that weekend, but that in itself will not be enough to qualify under the legislation as it will not meet the six-times-a-year criterion. We could look to open up properties on a free-of-charge basis, on a selected basis, if that would help.

Tim Leech:  As a small charity, we are not really going to benefit from this at all. We have had cash donations in the last couple of years of around £100 to £140. We do not have any buildings: we do not have shops or community centres. We deliver all our services in people’s homes via a third party. So I would be looking at bringing in a bit more parity to the Bill, so that it is more applicable. I can see that there are going to be great benefits for smaller charities, if there is, perhaps, a sliding scale in terms of the relationship to gift aiding. Whether the relationship is 1:10, 1:1 or 1:3, I hope that there would be changes around it to bring it to other areas where people may be able to raise funds. It is also about getting something into legislation that we can actually utilise, build on and use. I support that—I generally welcome it. It will bring new money in for the sector, and it is a great opportunity for us.

Darren Spivey:  I am Darren Spivey from the RNLI. Obviously, I echo Tim’s points. This is a great opportunity for charities. I reread the original purpose, which was to enable charities to claim a gift aid-style payment where is difficult to obtain one. My concern about the way the Bill is going is that there is a lot more overlay of detail and things that we would have to prove in evidence. I have listed a few things: evidence that it is a community event, evidence of cash collection, evidence that attendees are beneficiaries. A lifeboat station may be the hub of the community. The RNLI is almost entirely funded by the general public, so a substantial number of cash donations go through the lifeboat station. My concern, especially having been present at the outset of gift aid, when we went from a great idea to requiring a lot of evidence—even when you have a donation by phone, which is meant to be form-free, HMRC require a letter to be shown to say that you have sent something to somebody to show that you actually have the money and that you told the donor the conditions—is that once this goes through with all this level of detail, you are just getting rid of one onerous administrative burden, which is the form for small amounts of money, and moving to another one, where you will have to prove that the attendees and the beneficiaries are the ones we said they were. How do we evidence all these things?
I welcome the Bill hugely. In terms of cash donations, we miss out on a lot of gift aid because of the amount of money that goes through the lifeboat station. A practical example would be where money is put into the local collecting box because, in terms of security and the way we administer, it is the most secure, easiest and most efficient way. How can we then split those donations between general visitors to the lifeboat station and those who attended, say, a safety event or a first aid event, or who were a casualty who was picked from the water? As I say, it is an excellent idea, but there are practicalities to all these overlays that I can see coming through in the latest amendment. How do we prove and evidence that these things are happening?

Q 55

Fiona Bruce: My question is to Mr Spivey. In my constituency, which is about an hour from the sea, there are several active RNLI fundraising groups. Obviously they have no community buildings and there is no charitable work carried out in this inland area. What percentage of your cash collecting do you think is derived from similar sorts of activities that do not come under the category of a community building collection?

Darren Spivey:  You could probably say that it relates to the number of fundraising branches and the number of station branches. Just about all of them bring in over £5,000 of cash donations, and we have about 1,000 fundraising branches and about 200 community station branches. I welcome this Bill because we have a potential of 200 community buildings gathering that money, but if the intention is to enable us to get more gift aid on the kind of donations you talk about for the local community—that is not just the RNLI; it is anybody collecting money—there is a huge opportunity missed in those areas. As I say, the measure is welcome because we are starting to get more into this difficult area, but there is that downfall that it does not allow us to get the gift aid on the cash donations that I am sure our loyal supporters want.

Q 56

Cathy Jamieson: I wonder whether I could probe a bit more in relation to the community buildings? This is a question for the National Trust in particular. Is your concern mainly about the pay per entry issue, or are there other aspects of the legislation and amendments as drafted that would make it difficult for the National Trust to make use of that particular aspect of the Bill? My other question is for the RNLI: can you give us some examples of how you think we could alter the legislation to ensure that all the areas from which your small cash donations potentially could come can be counted for gift aid?

David Warrellow:  With regard to the community building provisions, when we looked at the legislation as previously drafted we were reasonably confident that a large proportion of our visitor properties would qualify—we would have a large number of buildings within each site, but they would be deemed to be a single building for the purposes of the legislation. In terms of meeting the criteria on the number of beneficiaries and the number of times the events were taking place each year, we did not think that we would have any difficulty meeting those criteria.
The amendment to exclude properties where the visitors have to pay for entry will take out a large number of our properties. We have other properties that are free to enter; we have information centres or study centres—places like that—but they tend to be the sort of properties where we do not necessarily get the footfall of visitors that would generate enough in the way of cash donations. So that change would have a big impact on us.

Darren Spivey:  From my point of view, there are two important elements, which Fiona mentioned. Okay, the lifeboat stations are the community buildings. I think that starting to take out some of the restrictions on how items are collected and who the beneficiaries are, which would be very difficult to evidence, would be a strong start. Here is the community building, we have proved that it is the community building, and people see it as the hub of the RNLI, at the local lifeboat station and near the sea. I think that proof is fine; I do not think that you then need the overlays of what more needs to be proved—all the beneficiaries, and so on.
In terms of fundraising branches, it would get more and more difficult and open up a whole world of legislation. You could talk about community organisations, and, because we need to monitor it to see how branches are doing, we certainly have the evidence of cash collections. Each community organisation has its own registration number, so if you had a registered community organisation that collects cash for the charity, you could start to open it up to that area. Not all of them collect £5,000 and not all of them collect it in cash, but certainly with a registered community organisation, where there is a degree of analysis and overview, as well as a committee and things like that, you could start to draw out a few more additions to this purpose. I come back to the purpose of trying to relieve the burden on cash donations.

Q 57

Susan Elan Jones: I have a question for the RNLI concerning your local branches. Am I right in thinking that for most, if not all, of these local branches, the committee would be voluntary?

Darren Spivey:  Absolutely.

Q 58

Susan Elan Jones: Perhaps a good proportion of what they do would be organised community events?

Darren Spivey:  Yes.

Q 59

Susan Elan Jones: So they are events they would perhaps charge people to attend. There are clearly some very welcome parts of this legislation, but do you think that there is a danger that, because all these people are volunteers, they may think, “Well, actually, I can’t be bothered to do this”? Is it likely that, on a national level, you would turn around and say, “If we want to benefit from this legislation it would be much easier to try to get individual supporters to give”? Do you think that some of the restrictions would make some of your voluntary committees just say, “No, we can’t be bothered”?

Darren Spivey:  That is an interesting question. If it created any more administrative burden, I do not think that they would do it. Considering the maximum is £5,000 per area, and in different areas we would gather more monies than just cash donations, I think that it would turn people off if we asked them to do any more administration. On the flipside, I do not think that we would ask them to do the administration. If it turned out that, for each of the six bullet points I have written down, we would have to evidence that it was a certain type of event, and it was a donation of less than £20, and all those other things, I do not think that we would do anything more than simply say that we cannot gather money at that type of community building, or even that community branch.

Q 60

John Hemming: Further to Mr Spivey’s point, are you saying that it is a question of the detail of the evidence required by HMRC, rather than the wording of the Bill?

Darren Spivey:  That is my biggest concern in all of this. Generally, from where gift aid started as a concept to this, now, it seems overly burdensome for what you are trying to do, which has absolutely great intentions, so please carry on.

Q 61

John Hemming: But the burdens come from the implementation rather than the statutory regulation.

Darren Spivey:  Yes, exactly. When gift aid first came in, there was a real difficulty, between HMRC and the charities, in how we could prove what HMRC wanted us to prove. It ended up with more forms, more administration and more audit checks. I remember that we had a soft audit check at first and were found wanting. We made changes, and everything is fine now, but now we have at least two people who monitor our gift aid, full time. That is the kind of burden that could be added here if we do not do this in the right way.

Q 62

Gareth Thomas: One reason for a number of the Bill’s clauses is to protect against fraud. To what extent have you had concerns about any members of your organisations being involved in fraud? Has there ever been a prosecution brought by HMRC, or any other body, because of concerns about fraud in organisations that are under your umbrellas?

David Warrellow:  On behalf of the National Trust, I can say that the vast majority of our gift aid claim is currently off the back of our membership subscriptions. We also claim on appeals and donations, but the amount of gift aid claimable on that is much lower than for memberships where we have a regular, ongoing relationship with our supporters.
As far as any evidence of fraud is concerned, nothing at all has ever come to my attention from any aspect: in property administration; at the centre; or in local supporter groups that fundraise on behalf of the National Trust.

Tim Leech:  In all the organisations I have worked in, from large to small, it has never been an issue that has come to my attention—I have never seen it raised.
I would also point out that while fraud is what people are concerned about, and we are tightening things up to try and prevent that, the Government run schemes already through which you can claim money, which do not have this amount of backing to stop fraud happening, so I think this is a bit of an overkill, if you do not mind me saying. The whole point of the Bill is to make it easy to get money back into the communities so that something can be done with it, and the more you tie that up and worry about it, the more problematic it becomes. Spot checks would be one thing, but you have tightened up gift aid, which is a positive, and if it were on a sliding scale, it would be more open to people to join in, and it would promote gift aid as well, so you could take it forward in that way.

Darren Spivey:  From the RNLI’s point of view, there are two elements to the question. The first is of fraud in the RNLI, and people taking money from the RNLI. I have been at the RNLI for 18 years and I have seen probably only eight or nine cases of fraud. I still remember going to a certain island—to Aith—and when I asked the question, they said that anyone who committed fraud against the RNLI would be drummed off the island. That shows that there is a great passion in volunteering for a charity; people do not do it to take money.
Obviously, you create systems to minimise the risk of fraud, and in my written declaration, I think I said that one of the concerns I have with how you want this to happen practically is that if you collect a batch of money at the end of a charitable event, it increases the risk of fraud, as opposed to putting the money into a secure box, which is what we ask people to do.
In relation to gift aid, where we have had three inspections now, the only issues we have had in relation to fraud are where we cannot find a particular form. When we went back to the donors, which we did on our second audit when reparation was still allowed, every time the form came back saying, “Sorry, it was just an administrative error.” There was no fraud from the RNLI in relation to trying to over-claim; it was merely an administrative issue of trying to get the right form in the right place and trying to find the forms.

Q 63

Gareth Thomas: Mr Leech, you slightly pre-empted me with your experience of other forms of Government funding. Will the three of you say what other sources of Government funding you receive, if any, and what you have to do to receive those sums of money and to protect against fraud?

Tim Leech:  The charity that I run at present receives no Government funding, although we support a lot of Government initiatives, such as the TV switchover help scheme. Money from national lottery schemes and small community funding is one source of which I am very aware and it is utilised by lots of different organisations and community activities. With these, you can claim up to £10,000 and you do not have to be a charity. Of course, there is a stark difference between a registered and a non-registered charity. A charity is a legalistic construct that can be applied to lots of different classes, so there are lots of ways that one can get into that. That seems to be a good indication. Those funds are channelled back to the public through charitable or community-level work which, again, gives you an indication that people are checking for fraud and that the administration is tight. It seems to be balanced in terms of what you can do with that amount of money.

David Warrellow:  To my knowledge, the National Trust does not receive any direct Government funding either. The vast majority of our income is generated from membership subscriptions, investments, legacies and visitors at our properties. We receive a large number of grants from various grant-giving bodies, and my understanding is that some of the audit requirements imposed by those bodies are quite onerous. We have to keep quite a lot of paperwork—in many cases original documents—for back up and to prove that the money we receive has been spent on the projects for which we have applied for funds.

Q 64

Gareth Thomas: Sums as low as even £1,250.

David Warrellow:  No. I am referring to much larger grants. I do not know what the individual requirements are, but I know that we have come across the issue where although we have tried to scan our invoices and other documents, we need, in fact, to keep the originals for some of the grant-giving bodies, because they will not accept scanned images as evidence, so their requirements can be onerous.

Darren Spivey:  With the RNLI, 98% of our money comes from supporters, not from the Government. Having said that, in relation to inspection and review, we have a very good working relationship with HMRC at the moment through gift aid and VAT claims. Our latest visit is more in relation to a high-level risk assessment—I believe that that is where HMRC is going—to say, “What kind of organisation are you? Let us look at your systems, controls and procedures, and see if we are comfortable with them.” HMRC is reviewing these over the next five or six months to see what kind of risk we are. From our point of view, HMRC seems to be moving more towards a risk-review and an audit function, as opposed to working in a specific, detailed and evidential way.

Q 65

Sheila Gilmore: In terms of some of the other requirements, your organisation will be affected by the requirement to be able to match through previous gift aid, for example. Do your smaller organisations—member organisations—already collect sufficient money via gift aid to meet that requirement?

Tim Leech:  About an eighth of our money is through gift aid. We have always done that; it is a major source of our funding. We were early subscribers to the scheme and we have a very loyal donor base who like to give that way. Some people are not eligible to give because they fall outside the tax regime. I find this a fair way of doing it. We would be able to sign up if we could have community events, if we started working in a different way or we were a larger organisation. I have to think very carefully how I spend money on fundraising, because I cannot put boxes in every shop or go off to loads of community buildings. However, that is not to say that charities that can should not benefit that way.
I can also see it from another point of view: that of a parish council looking at a couple of trusts operating in my village where they are trying to build a new sports pavilion. They have already started the gift aid scheme, but they will not be eligible because it has not been running for three years, but that little extra boost would be very useful for that community to carry on the Olympic theme. A village hall trust would find it very useful as well, but they have not necessarily got gift aid up and running. If we could have it at a high level—say 10:1—that might be a better way forward for people as well. There is an onus on trying to tie it up too much with gift aid, I think.

Darren Spivey:  From the RNLI’s point of view, the matching aspect is not a huge issue. With my Charity Tax Group hat on, I would obviously welcome what my colleague has talked about. It is difficult. I am a volunteer treasurer of other small organisations and, largely, they find gift aid onerous. They probably will not have gone into the gift aid side of things—doing the forms and so on—so this will not benefit them. They are smaller and not as well organised, and they do not have professional people working for them, so we have to recognise that it is quite difficult for them, on the volunteer side, to do the things we are asking them to do.

Q 66

Sheila Gilmore: At the moment, do your component parts that would meet the requirements for community buildings, and so would get over that barrier, account for gift aid separately, or do you normally deal with that centrally?

Darren Spivey:  We deal with that and, again, there is a huge amount of administration and form filling to ensure that we get the right value. There are times when trying to get the right evidence costs us more than the amount of gift aid we get back on a £10 donation. I welcome this—I think it is fantastic—but I sympathise with those smaller charities that do not have the level of support that the RNLI can give those volunteers, because we have to do a lot of administration to ensure that they do all the right things, and dot the i’s and cross the t’s, to get that money back. While it will not be such an issue for our people, because we are there to support them—certainly with the gift aid forms—we do not go down to that level with the smaller values at the moment; we just make sure that we do it for the bigger values.

Q 67

Sheila Gilmore: Is it your understanding that each component bit would have to satisfy the matching requirements?

Darren Spivey:  That was not my understanding. I thought it was by the charity. I did not know it was that specific.

Sheila Gilmore: I am not sure; I just wondered whether you knew.

Darren Spivey:  My understanding from reading it was that it was the charity registration itself, rather than the community building—I hope that it is, otherwise it is going to be extremely difficult to prove over the years.

Sajid Javid: It is the charity itself.

Q 68

Cathy Jamieson: A question for clarity and to have this on record. You talked about the proportionality of what you are expected to do to get the additional top-up payments. Do you think that the administration you have been asked to do is proportionate, given the amount that the charities will get? Is there a better way to do it, and is there something that could be done to simplify the process?

Tim Leech:  I do not think it is proportionate. That starts from what I said about the need for parity to be brought to the process so that it is applicable to as many people as possible. I think you can look at it in a number of different ways. Take the good bits of gift aid: people make a choice, and they can make a choice of gift aid, which I find very attractive. I see this as very separate to gift aid; it is about small charitable donations. People make such donations, and they should be able to have the benefit back, and the charity or charitable cause receiving that money should be able to claim that. You are asking about it being matched just because the charity has taken it up and registered as a gift aid charity or cause. That is part of the process, and you could have a date from which that starts.
It could be that people are shown to be looking at a cause that is undertaking work within the community, which becomes part of the process and is recorded, so it is more about something happening and people trying to raise money around it, rather than trying to chase the money back and being asked about evidence of it being donated in such a way, which to me would become very onerous. You can also see whether it matches up with people’s bank records and judge whether it is properly administrated.
It is also about whether you want to take it slightly another way by looking at the organisations that are accountable and transparent. By that I do not mean that they have to be registered charities, but they should at least have known, named trustees for administrative governance, with that information publicly available, whether on a notice board or through posting accounts and so on. Those things would start to give me a little bit more security.
The amounts that are being asked for are very small and they become a problem only when lots of people are able to claim because it builds up. That is where you have to get a little more proportionate with the larger claims. Does that help?

Darren Spivey:  I think there is a danger that it could easily require exactly the same administration, if not more, as you get more overlay. With gift aid, you have to provide HMRC with evidence that you have actually had the money in the bank account. We have to keep copies of bank statements for our branches to show that money went into the bank account. That is the kind of evidence we have needed in what should be quite a simple system.
For this, are we going to have to prove that there was a first aid course for the general public and that the general public could access the building? I honestly do not know until you get to the practicalities of this. My fear is that it will become more burdensome and we could not take advantage. Again, I come back to the main purpose: the cash donations and being able to get that back. I come back to simplifying the process and saying, “You are a registered charity. You do have a community building where you can prove that the charitable activity is carried out,” or, “You do have cash donations to a cause for a registered part of that charity.” If we want to widen it to our fundraising branches and say that the purpose is about getting the gift aid on those cash donations, we should bring it back up, rather than getting more and more detail, because I am worried.

Q 69

Gareth Thomas: Are you happy with the way in which a small donation is defined in the schedule as having just a £20 limit and just being in cash? Should the limit be higher or lower? Should you be able to make other forms of donation of that sort of value?

David Warrellow:  Personally, I think the £20 limit is about right. It was originally going to be £10, so we welcome the increase to £20, which feels right for the type of scheme that we are aiming for.
On whether it should be purely cash, there ought to be provision in legislation to allow HMRC to accept alternative forms of payment. Technology is fast-moving, and we have things such as contactless payments and text donations. While the scheme can certainly start off by being for cash donations only, HMRC should have the power to allow alternative forms of payment in the future, certainly once the scheme has bedded down and once the other technologies that are coming in are more frequently used for charitable donations.

Q 70

Mark Durkan: On the issues of the problem of the qualifying period and the linkage to gift aid, and how that might hamper some charities, can I ask if any of you, in the course of your various activities, are aware of how credit unions are treated by the FSA under Treasury legislation, according to whether they are version 1 or version 2? There are different levels of treatment given to credit unions, depending on their size and scale, and the type of services and activities they offer and support: one treatment for smaller, newer credit unions, and a different treatment for bigger, more established ones. Might that same sort of sensible feature translate to how charities are treated? As well as taking money from the public, credit unions get benefits and grants. They are treated at two different levels; have you considered whether charities could be treated in a similar way?

David Warrellow:  I have no knowledge of credit unions, but from what you have said, that would be an excellent point to take up and look at. There would certainly be mileage in looking at having a two-tier system, with one tier for established charities under the scheme and one tier for start-up charities. If start-up charities are, say, fundraising for a village hall, community centre or something like that, where cash donations would be received during that start-up period, they could lose out considerably if they have no gift aid history. So something along those lines would be very welcome indeed.

Darren Spivey:  I do not know the history of credit unions, but I agree that no charity is the same, and therefore to try to bracket a large, national charity, which has a substantial amount of money, with a smaller charity is extremely difficult. That is probably where most of the problems are coming into this.

Q 71

Gareth Thomas: To pick up a point mentioned by my colleague, but to ask the question in a slightly different way, this is a scheme that is designed to get a maximum of £1,250 to small charities. Is there a better way to achieve that end, in your view, than to link it with gift aid and require you to jump through all the different hoops that you have just been talking us through?

David Warrellow:  I would propose that there could be alternative eligibility criteria to allow charities to participate in the scheme. I do not think that it has to be linked to gift aid necessarily. I can fully understand the reasons why HMRC wants to link it to that, so that we have the anti-fraud measures there, but I think there could be alternative criteria. For example, if a charity already has a history with HMRC, because, say, it operates a pay-as-you-earn scheme for paid employees, a good compliance record there could count. If the charity has been occupying its community building for three years, it could provide evidence to HMRC of, say, having successfully claimed for the mandatory charity relief on business rates, or could provide other evidence of occupation being established at those premises, such as utility bills or bank statements. HMRC should be allowed to accept alternative eligibility criteria if a charity cannot meet the gift aid criterion set out in the legislation.

Tim Leech:  I would echo that. I think you have to look at a little more flexibility, which will allow more people to take part and create that parity across the Bill.

Darren Spivey:  Again, I agree. The principles are sound with this, and the RNLI certainly welcomes the principles. The more detail you put in, the more difficult it will be. It is fine, to a point: why keep overlaying it with difficulties? I would take it back to where it was a while back, and say, “Don’t try to get down to the specifics of how a charity operates, what it does or what its purpose is.” It is all about the purpose of this Bill, which is to enable charities to get that £1,250 to their centres in the community. We should come back to that, to a higher level, and allow HMRC a bit more leeway to work with charities, to see how you achieve that purpose. That is what I would do.

Q 72

Cathy Jamieson: I want to come back briefly to community buildings. One of the jobs that we have to do as a Committee is look at the wording of the Bill. We have heard quite a bit about things that could potentially be clarified in guidance; hopefully, that would not be pages and pages of guidance, but short and sharp. I wonder if that would be useful in relation to the community buildings clauses, particularly because it seems that, with the best of intentions, efforts to try to simplify that have had unintended consequences for others. Do you now feel—from your organisation’s perspective—that the actual wording of the Bill in relation to community buildings needs to be further amended? Or could the issues that you are concerned about be sorted out in guidance?

Darren Spivey:  Personally, I still feel the Bill needs to be amended. Take the RNLI, for example: we save lives at sea. Does that mean that our charitable activity is happening in the lifeboat station, or does it mean that it is happening at sea and the station does not become a community building? To say that charitable activity has to happen there and the cash donations happen there, and people associate with that cause: do we actually have to run 10 first aid courses at that lifeboat station to get it or do we recognise that that is a community building there? A more generic way of wording that would be better than, “You have to do your charitable activity and people have to collect money,” etc., etc.

Tim Leech:  I generally agree, but again, our activity is not done in a building—I do not have buildings.

David Warrellow:  I agree. I think there are some areas in the legislation that are still open to interpretation. If that is covered by the guidance, fine, but there are some terms in here that would need clarification in the guidance. For example, you use the terms “residential purposes” and “commercial purposes”. Those can be interpreted quite differently in certain circumstances with different charities.

Q 73

Cathy Jamieson: In relation to those two examples—residential and commercial—are there concerns that that would impact on the National Trust in particular?

David Warrellow:  In the VAT legislation, for example, there is quite a lot of detail about what is and what is not a residential building. We do not have that here. I am not suggesting that we need to transfer all the VAT definitions across into this Bill, but I know that there could be some grey areas with things like hospices or hostels and those types of establishment. Are they residential or not?

Q 74

Nigel Mills: Earlier, you answered a question about whether cash donations will be replaced by some modern form of technology. Are you aware of any schemes—or are you considering implementing any schemes—that achieve that? I think I have heard of swiping your Oyster card to donate £2 to a charity rather using cash. Do you have any specific examples of that?

Tim Leech:  There is text giving and phone-to-phone giving, so it goes straight to bank accounts. Giving by text is quite easy for small organisations to set up and administer, and there is a trial, so that is something we are looking at.

Q 75

Nigel Mills: Do you see that as an alternative to impulse-giving of cash—that is the old swipe by phone or follow a link or something and just give a small amount, rather than its being an extension of a more formal dimension?

Tim Leech:  Yes, lots of times a text-given amount is set at a low level. It will be about a £20 donation. A lot of the time it is in response to something someone sees or interacts with. So it could scan things to say, “Give us this, give a bit more information, make a donation online.” You can do that on a mobile phone, so it can very much be an impulse. That could be another thing. One of the points made was about changing technology. We cannot pre-empt it and we do not know what will happen, but it is good to have a little bit of space in the Bill to make sure that what we are legislating is not out of date straight away. This area is changing so quickly it is worth leaving a bit of room to manoeuvre later.

Nigel Mills: Do you think that we are a few years from the RNLI collecting tin being replaced with a collecting chip point that you can swipe?

Darren Spivey:  I agree entirely that we are in the very early stages. We have actually looked at a cash point at a lifeboat station, where you put in your credit card and however much you want to give, but we are at the very early stages. It was very expensive and people are quite happy to carry around cash, give it to their kids and watch it swirl round and round the collecting thing. That is what the fascination is, not seeing dad put the chip and pin number in. I cannot see that taking over for a very long time yet.

Andrew Turner: If members of the Committee have no further questions, I will suspend the sitting for five minutes.

Sitting suspended.

Examination of Witnesses

John Low, Caron Bradshaw and Peter Lewis gave evidence.

Q 76

Andrew Turner: We will now hear evidence from representatives of the Charities Aid Foundation, the Charity Finance Group and the Institute of Fundraising. Welcome to our Committee. Please will you introduce yourselves?

John Low:  I am John Low, the chief executive of the Charities Aid Foundation.

Caron Bradshaw:  I am Caron Bradshaw, and I am the chief executive of the Charity Finance Group.

Peter Lewis:  I am Peter Lewis, chief executive of the Institute of Fundraising, a professional body that brings over 5,300 fundraisers together.

Q 77

Gareth Thomas: Is it a perfect Bill, as drafted, or do you want some changes to it?

John Low:  It is an interesting Bill, but it is not perfect, and yes, we would want to see changes. It is clear that the stated policy objective is a good one, and one that we would support, but frankly, that policy objective has since been caveated. The Bill now requires charities accessing the scheme to have been claiming gift aid for three years, and has a matching element. It is unlikely that very small organisations will be able to benefit to the degree that the policy originally anticipated. They might struggle to claim sufficient gift aid in a year, yet it was because they struggle to claim gift aid that this policy was put in place, and this objective was established. Frankly, for large charities, £1,250 of additional tax recovery is not material, so this is clearly intended to benefit small organisations. It was never intended, as originally described, to be a top-up payment—in other words, gift aid plus this. It was always a way of allowing organisations that had difficulty accessing gift aid to access it.
There has been huge emphasis on fraud in the way this has been constructed, which has led to disproportionate requirements on charities. It is, in many ways, disappointing that we have got to this place. Clearly, the objective is welcome, but it could be implemented much better.

Caron Bradshaw:  I echo very much what John has said. Given that the starting point was an intended reduction in the administrative burden and boosting income for small groups that rely on bucket donations, the Bill is far from perfect, though the intentions are absolutely welcomed by the sector. Similarly, we are concerned about the matching requirements. We are worried about the complexity in respect of community buildings; the eligibility criteria will rule out the very charities that I think this was intended to reach out to in the first place—those very small, local groups that currently do not comply with, or make use of, the gift aid scheme.

Peter Lewis:  I totally echo that: £1,250 can be absolutely transformational for a small organisation, unrestricted money that it can then reinvest in other activities. We also thought that this was designed to be a pathway into gift aid for organisations that were not currently claiming it. The way that it has been drafted makes it far more difficult than gift aid itself. We echo John’s points. We do not think that the matching requirement is necessary. We think that the three-year rule is far too restrictive and should just be removed. There is enough of a guarantee against fraud through registering with HMRC to claim gift aid. You have to pass the fit and proper person test to get to that stage. The further requirements are unnecessary.
Having listened to some of the discussions in the previous session, I think the points about non-cash donations are very important. The world is moving on. If you donate via JustTextGiving, for example, the charity will not get your mobile number so it cannot go back to you to ask for a gift-aid statement. Those are all small donations of under £20 so we think that future-proofing the Bill to enable non-cash donations—organisations are in discussion with Transport for London around using an Oyster card for donations because they do not particularly want people with buckets in their stations. So if people can donate by putting their card reader on a simple machine they would facilitate that. It would be easier not just for the charity but for TFL. It is very good in principle and so is the idea behind it, but it is flawed in the way that it is currently drafted.

Q 78

Gareth Thomas: But the three of you would say that, wouldn’t you, given the jobs you hold? Part of the Government’s desire is, perfectly reasonably, to protect against fraud. Why are you saying that there are not other ways to protect against fraud?

Peter Lewis:  The example that comes to mind for me is this. When I ran small charities we were lucky enough to apply successfully for Awards for All, the National Lottery scheme. Awards for All is up to £10,000 per organisation and there are far lower fraud risks in relation to Awards for All than there are in relation to this scheme. There are very simple criteria about being an established organisation and having two signatories on an account. That has a fraud risk of under 1% they reckon. We have to be proportionate. John’s words about proportionality are absolutely crucial here. This small amount of money can be transformational for small charities, which it is designed to help, yet the Bill as it is drafted will preclude them from getting involved and benefiting from the scheme.

John Low:  It is fair to say that this is not tax relief. This is public spending. We should not automatically subject this scheme to the same HMRC requirements as tax that is being reclaimed through the gift aid scheme. That is to miss the point on this piece of legislation. It is much more comparable, as Peter says, with grant programmes such as that Big Lottery one. Even the Treasury and HMRC’s response to the public reading stage which was published yesterday reinforces that concern about fraud on the basis that it is tax relief. It is not tax relief. This is a heavily constrained public spending grant-type initiative. It should be seen in that perspective. It should not be seen as protecting against fraud in the normal recovery of tax. There are so many restrictions already in place. It has a cap. It is not a very large amount of money in tax terms. To get up to large-scale fraud, you would have to have multiple charities. You would have to find a way of passing the fit and proper persons test. You would have to find a way round the connected persons and the connected charities arrangements. Frankly, it feels like HMRC and the Treasury do not trust the Charity Commission to regulate charities sufficiently strongly and feel they have a need to impose their own measures on something that is not tax relief, but is public spending.

Caron Bradshaw:  You said, “You would say that, wouldn’t you?” Well, as an organisation, Charity Finance Group has the larger charities in membership. It is the very small ones that we are particularly worried about. Our smallest organisation is 100,000. Our biggest organisation is the Wellcome Trust. In answer to that direct point, no we would not. The second point I would like to make, in relation to fraud, is that, as organisations, we are taking the lead in ensuring that fraud, and the risk of fraud, are tackled. Fraud is not something that the charity sector benefits from. It is a double loser in this case, as it loses reputationally and it loses the money going into its pocket, so none of us on this panel would want to see more fraud happening, or money being diverted away from the sector.

Peter Lewis:  I think that is right. On the reputational risk, fundraisers, more than anyone else, know that you need to keep the public’s trust and confidence, and the last thing we want is a scheme that would be open to fraud and give the sector a bad name.

Q 79

Cathy Jamieson: I want to pursue the point that Mr Low was getting at. On Second Reading, we heard Ministers say that, in essence, this is not tax relief. Does that mean that there could be a better system for getting the amount of money that the Treasury believes could be claimed through this scheme into the sector, other than using HMRC as the vehicle?

John Low:  There is a principle embedded in the policy objective, which is that it allows gift aid-style payments to be made available, mainly to small charities and community sports clubs. There is nothing wrong with using the gift aid system, and you do get the additional protections that we spoke about earlier: the fit and proper persons regime and protection against connected persons creating a scheme where you can have multiple claims. I do not think that that is unreasonable. It is just unnecessary to put in the additional safeguards—the three years. Requiring a charity that has never claimed gift aid—there is an implied incentive to improve gift aid take-up—to register, raise enough that is gift aid-claimable and then claim for three years, before this kicks in is out of proportion in terms of the risks. Teaching charities and building up the structure to enable people to access this scheme is good and something we would welcome.

Caron Bradshaw:  May I add to the last point that John made? In relation to the paperwork burden for small organisations, the level of audit trail that you will have to keep to show that you have met at the right place, at the right time and with the right activities, will mean that, frankly, they will not do it. I cannot imagine a small, local pre-school going through that pain barrier for the benefit of £1,250.

Peter Lewis:  On the scale of it, my understanding is that, at the moment, there are 65,000 organisations that claim gift aid out of a possible 300,000 that are eligible. We thought that, in part, this scheme was designed to get organisations used to the gift aid system so that, as they move on, they can claim gift aid. At a time when, whichever political party is in control, public spending will be going down, charities are—[Interruption.]

Andrew Turner: Order. The sitting is now suspended for 15 minutes. If there is a second, consecutive Division, we will resume in 30 minutes.

Sitting suspended for a Division in the House.

On resuming—

Q 80

Andrew Turner: Mr Lewis, I believe you were speaking.

Peter Lewis:  I think I was explaining that 65,000 organisations at the moment claim gift aid out of a potential 300,000, if you include the exempt and eligible organisations. We saw this scheme as a way of introducing organisations to gift aid, so it is similar to gift aid but not gift aid itself. We are beginning to notice—this is a very good sign—that organisations are diversifying their income streams. Evidence is beginning to show that organisations that were previously heavily reliant on statutory funding—especially local authority funding for small organisations—are looking for other sources of income, including public collections and by engaging their communities. We thought that this would be a great way of encouraging them to do more of that and engage with their local communities. The ability to claim an extra £1,250 on top of the £5,000 could really get organisations into fundraising in a new way so they can do more in their local communities. Putting up barriers at a time when organisations are trying to diversify their incomes is something that worries us.

Q 81

Cathy Jamieson: May I ask in particular about clause 5, which talks about the connected charities and connected persons? There was some concern raised about that on Second Reading and the Government have tried to alleviate some of those concerns through amendments. Do you think that all the concerns have been addressed? Would the amendments make it better—would they make a difference—or are there other changes that you would like to see, particularly in relation to connected charities and connected persons?

John Low:  I would suggest that many of the concerns have been addressed, although there is a residual fear left in the system. The use of the Income Tax Act 2007 and the Corporation Tax Act 2010 for definitions of connected persons is not particularly helpful. It creates unintended, complex interconnections which are quite difficult for small local organisations, in particular, to cope with; they are difficult for anyone to cope with. There is no doubt that provisions like the one that says that purposes and activities have to be the “same or substantially similar” for the connection to be validated, and the Government amendment yesterday which clarified the point on the number of trustees required to create an overlap, are good things. However, placing the duty on trustees to identify personal connections or else end up effectively in breach of regulation adds another level of concern, particularly for small charity trustees who are already worried about liability and risk. In a number of cases—it is hard to predict how many—the scheme will simply be unused out of fear of getting it wrong. I would urge much simpler definitions, particularly at implementation, although it may be possible to do it in the Bill. We need to be very clear what those connections are, rather than expecting trustees to work out through other references to complex legislation what the connections would be. We need a simple, clear statement of what is required for this to be practical on the ground, if we are aiming at small and community organisations.

Caron Bradshaw:  I would echo an awful lot of that. I can understand what the purpose of the amendments is and I welcome some of the relaxation, or the attempt to clarify the connections. However, the reality is that for large organisations with advisers who can work their way through this, it will not be a problem. If you are a tiny local organisation it will be very difficult. The reality on the ground is that, particularly in small local communities, there will be trustees of multiple different organisations, many of which have similar or the same objectives. They may have other trustees who are also on that board and therefore will be caught in some way. Without wanting to sound like the person you stop in the street to ask for directions who says, “I wouldn’t start from here”, which does not sound very helpful, I think that we have made life a bit difficult for ourselves by trying to resolve issues that may not have been present if we had been much simpler in the way that we approached the Bill in the first place.

Peter Lewis:  I would also echo that. Another example that HMRC might want to look at is the big lottery fund criteria, which talk about independent organisations—organisations that have their own governing document, produce their own annual accounts and have their own building society account—which is a far simpler way of saying, “Is this organisation independent or not?” than the complexities that are currently in the Bill.

Susan Elan Jones: May I clarify, if possible, from the three of you that what you are saying is in effect that charities with professional staff are much more likely than other smaller community and voluntary organisations to be able to deal with this, simply because they will know how to get through the hoops? I am thinking of something we mentioned earlier today—a small charity that potentially did not have £625 in gift aid per year. Perhaps an organisation with a professional fundraiser, or something like that, might look at this and say, “Well, hold on”. If it has, say, a church collection coming in, will it go back to the church and say, “Hang on, take back your cheque for £500 which you have kindly given us and let’s have individual members give it so that we can get round the regulations”? There are ways round this, but it will not necessarily be the sort of bother that will appeal and there will not necessarily be the know-how for some smaller organisations to deal with it—is that what you are effectively saying?

Peter Lewis:  From our perspective, the people who are doing this are charities or organisations that are set up for the public benefit. That is what the people care about: delivering public benefit. At a very grass-roots level, £1,250 extra could be a hugely important sum. What you want to do is to make it as easy as possible for people to do that. For some of the smallest organisations, perhaps if they do not have professional people on their trustee board, the whole idea of having to register for gift aid, with all the complexities of that in the first place, would be a disincentive. That is the fear. The idea behind the scheme—to reach those small organisations at a grass-roots level, to encourage them to engage with their communities and to collect more money and get a nice top-up payment at the end of it—is being subverted by the tightness of the drafting of the Bill and is disproportionate for the amounts of money concerned.

Q 82

Susan Elan Jones: So if each of you could change the Bill in any two ways, what would you pick?

Caron Bradshaw:  I would suggest that the eligibility criteria would be a good place to start, if you were particularly looking at transitioning in smaller organisations. I would get rid of the matching requirement, particularly because it does not add anything extra for fraud protection and, if it does add any fraud protection, it is disproportionate to the risk that is being experienced and it pushes the risk on to the smaller organisations, which—going back to your initial question—will not be set up to keep the audit trail and the level of payment work.
Wherever you draw the line, there will be winners and losers. We acknowledge that, but those with professional staff and those with systems and processes already there and which are already taking advantage of the gift aid scheme as it exists will benefit disproportionately against those small charities that will not. I thought it might be interesting to throw in a fraud fact here, which is that the Fraud Advisory Panel, a small charity set up specifically to report on fraud, did a survey in 2009, which ironically showed that larger charities, with a large staff and more distant connections with their staff, are more vulnerable to fraud than the smaller organisations that we have here. We are putting the balance in the wrong place at the present time.

John Low:  I would just get rid of the whole question of three-year claims and matching donations. They are unnecessary in terms of protection. It is more than enough to be registered and to pass the connected charities and the fit and proper persons tests. I would sweep those away, because they are unnecessary. Your question about the £650 is unnecessary and should not be there. Community buildings need sorting out. Maybe we will come to that in a moment, but the issue is not satisfactory the way it is.

Peter Lewis:  I would echo that. The three-year rule and the matching rule should just be removed. I make a plea for the scheme to come into line with the gift aid scheme, which allows for non-cash donations. If you have a chance to make amendments to allow that to happen, that would be welcome. It would be welcome if you could ensure that it is future proof and that organisations that are trying to use technology, such as text donations, are able to claim the top-up payment on those amounts.

Q 83

Cathy Jamieson: Mr Low mentioned community buildings and it will be no surprise that we have an interest in that, given that there has been a lot of concern raised about those clauses. The Government have put forward some amendments to clarify that, but we have heard that there are some potential unintended consequences of that. Could you explain to us how you would like to see those provisions clarified or changed? Does it have to be changed in the Bill or can it be sorted through guidance?

John Low:  I believe that it has to be through changes to the Bill. Fundraising is a separate activity from the provision of services, and the definition in the proposed rules will make it difficult or impossible for a number of valid organisations that are at the heart of the policy. They will be excluded. The obvious one is hospices. There are 260 hospices, which are major organisations in the country and deliver services. Are we seriously suggesting that we go round the beds of people who are in hospices, collecting money from the beneficiaries, and that that is the only way to make this provision work? I am sorry, that is just not good. Donors and beneficiaries are distinct communities; they may sometimes be the same, but they are usually distinct. Frankly, it is inappropriate in many cases to solicit donations from beneficiaries, the very people you are seeking to support.
Unfortunately, the Government amendment that was tabled yesterday does not help. It effectively requires the donors also to be beneficiaries—I do not understand it and it does not make sense. There is an HMRC principle, which is fairly well understood, that donors should not normally benefit from the donation that they have given if tax relief has been recovered. Perhaps this is some kind of subliminal attempt to say that this is not tax relief, it is actually public spending, but I think that that is just going too far.
I think that, other than for churches, it is going to be hard for many charities to satisfy the requirement for donations to be collected during the course of charitable activities. I think that for many of the organisations that have these federated, branch-type structures that use community buildings, other than churches, these provisions will just exclude them from participating in the scheme. It needs to change.

Caron Bradshaw:  I would start with a positive thing, which is that we welcome the intentions behind two of the tabled amendments in trying to knock the commercial and residential elements out. However, we are resolving one problem by sticking another one on, and we are ending up with a very layered, complex system, which, in common with a number of the other points that we have made already, would disadvantage the very people we are trying to seek.
I would also echo John’s point on tainted donations. We have just gone through a huge amount of hassle in the sector, trying to put across this notion of tainted donations, where you do not benefit from the gift that you give. You will see that particularly around the substantial donations—I am struggling for the right word; I was going to say debacle, but I think that that is far too strong. You will see that in the situation around the substantial donors legislation, where we found a lot of organisations, particularly in windfall situations, being penalised because they had a connection with the beneficiary. So I think that the starting point is wrong, and certainly the part of the amendment that alarmed me most was that making a very explicit link to the beneficiary being in the donor group.

Peter Lewis:  I would just echo what both John and Caron said. I cannot add anything to that.

Caron Bradshaw:  The other point that I wanted to make, if I may, is that you can never make good law by just making up for inadequacies in guidance. It is important, particularly for small organisations, that the face of the Bill is easy to understand.

Q 84

Gareth Thomas: Caron, I think you used the phrase, “You have to draw the line somewhere.” Presumably, part of the thinking behind some of the complexity in the Bill is to try to stop an unlimited amount of money being spent through this scheme—I think the Government have said that they expect about £60 million to be spent in the first instance. If that is the amount of money that is available, and the maximum amount that you want to give out is £1,250, would there be a better way of allowing small charities to claim access to that sort of sum?

Caron Bradshaw:  I guess it is similar to the point that John was making earlier, which is that there is a link to the gift aid scheme, and I do not think that we would object in principle to that being where the link is made. Again, I do not want to say I would not start from here, but I think that by adding in a number of areas around connected parties and community buildings, rather than just making a simple link to the gift aid scheme, with a transitional entry point, we are not actually putting in any additional methods of preventing fraud. We are certainly not adding ones that would make up for the burden, the disadvantages and the barriers that are being created by phrasing it in this way.

Peter Lewis:  I would echo that. When the Bill was first announced, we thought that it was a great idea that would introduce people—organisations that are currently intimidated by gift aid, or perhaps do not get a significant amount of donations from the general public—to gift aid and get them interested. They might begin to fundraise in a different way and to engage with individual supporters in a different way and move on to claim gift aid. It is a good thing from our point of view that charities are using the tax system to benefit their beneficiaries. However, you get to a stage where you think the legislation has been so tightly drafted that it is not going to achieve its aim, and there are obviously other ways. If the Government wanted to give away £60 million or £100 million to small organisations, you would not start where you are, which is what all three of us have said, but there is value in making a link to the gift aid scheme if you can make it simple enough to encourage new organisations to sign up and to enable new organisations and organisations that are diversifying their income streams to use it in a very easy and simple way.

John Low:  I would suggest that the stated policy objective is a good one. Allowing charities and community or amateur sports clubs to claim a gift-aid-style payment is a good thing. The difficulties of bucket collections and cash donations are well recognised. I take Peter’s point about text donations and Oyster-type donations, but setting that aside for one moment—he has made that point clearly—cash is important for many charities. We are addicted to giving by cash in this country. It still remains a very significant proportion of the giving. The proposal will go only a very small way towards tackling that huge pot of cash donations. It is entirely right that it should be focused on smaller organisations and allowing gift-aid tax-type recovery into the community is a good thing to do at this point in time. Those sums of money will be very significant for those organisations. It is good that such organisations can get recovery having actually raised funds, worked hard in the community, and been supported by the public. Otherwise, it becomes very much public spending chosen by the Government of the day to meet its priorities, whereas this is linked into the activities of the charities. I am quite content with the methodology behind it, although the implementation and the restrictions just seem heavy-handed.

Andrew Turner: If hon. Members have no further questions for this set of witnesses, that brings us to the end of this part of the evidence session and I thank our witnesses very much for coming.

Sitting suspended.

Examination of Witnesses

Sajid Javid MP, Andrew Edwards and Sam Anderson gave evidence.

Andrew Turner: We will now hear evidence from the Economic Secretary to the Treasury, Sajid Javid, and his officials.

Q 85

Gareth Thomas: Could you talk us through the motivation for clause 3(3)?

Sajid Javid:  First, Mr Turner, may I start by saying that this has been a very informative session so far? I also want to put on record my thanks to everyone who has given up their time today to take part, give evidence and help the process of implementing and bringing to fruition this legislation.
With regard to Mr Thomas’s question, clause 3 is about the definition of “small donation”. Clause 3(3) refers to certain entities that are excluded from that definition. The reason for that goes back to the essence of the Bill and why the Government thought it appropriate to introduce it in the first place. I will start with that, because it may touch on some of the issues that have already been raised today.
The Government’s intention was to complement the current gift aid system, which has been very successful and has had cross-party support for many years. However, it was becoming increasingly apparent that when many charities received small donations, particularly in cash, the requirements for meeting the gift aid criteria—providing certain information and declaring that the donor was a UK taxpayer—was seen as either too burdensome or just impractical. The purpose of this Bill is to try to capture those smaller cash donations. The Government looked at this and defined a small donation; it is important that it is actually a donation given by individuals to support the charity in question, and is not seen in some way as a charge for a certain activity, such as entering a museum. In essence, that will help to explain clause 3(3).

Q 86

Gareth Thomas: I asked the question because I was in conversation with the House of Commons Library, and it made it clear that its interpretation of the clause is that it brings the four named organisations into the remit of those that can take advantage of the Bill. I am surprised by that, in the context of what we have just heard from the National Trust. It said that up to 200 of its properties—presumably similar to the types that the Historic Buildings and Monuments Commission for England or the National Heritage Memorial Fund might support—will not be able to claim as a result of the new clause that the Government have tabled.

Sajid Javid:  The definition of “small donation” is intended to capture and help small, community charities that raise funds for their activities through a donation process, and not from charging for any of those charitable activities. For example, charging for entrance to a museum is a charge and not a donation as far as this Bill is concerned.

Q 87

Gareth Thomas: But the trustees of the British Museum could organise a bucket collection as a result of being included in this Bill and claim £1,250 back.

Sajid Javid:  If they met the rest of the criteria in the Bill, they could.

Andrew Edwards:  This rule replicates the gift aid rules, and brings the scheme into line with gift aid. The listed organisations are listed because technically, by law, they cannot spend money on non-charitable things. All that this provision does is bring them into line with gift aid, so they are treated the same way in this Bill as they are for gift aid purposes.

Q 88

Gareth Thomas: You do not make the Bill fit with gift aid in terms of the types of small donations that can be registered. We heard from the previous panel of speakers that text giving is included in gift aid, but not in this Bill.

Andrew Edwards:  Correct.

Q 89

Sheila Gilmore: I was wondering why it was felt to be perfectly adequate to allow quite large organisations to start claiming quite large amounts of gift aid immediately, as soon as they register, but it was not in order for smaller organisations who have registered for gift aid to begin using this scheme.

Sajid Javid:  Allow me to explain. That question came up a number of times during the evidence session and it is important. It is to do with preventing fraud. When a charity currently registers for gift aid, we set eligibility criteria for it. Clearly there are fit and proper person tests and others carried out, rightly, by HMRC, but the process of claiming through gift aid by definition involves the individual who makes a donation giving their name and address, declaring that they are a UK taxpayer, and sometimes providing other information. In itself, that provides an audit trail that helps HMRC, when it is looking at that process and looking to cut fraud, to monitor and better audit that process. Under this Bill, when the charities claim the top-up, which is not quite gift aid but is linked and designed to complement gift aid, the donations are cash, and the kind of audit trail available with gift aid simply does not exist. Imagine a bucket collection: once the money is taken, there is no way to know who threw money in or what their status is. To deal with that, the extra eligibility criteria have been introduced.

Q 90

Sheila Gilmore: But given that you have a cap on the amount, which is relatively low, the scope for fraud would appear to be equally limited, whereas with gift aid you are dealing in some circumstances with quite large amounts that people could claim are gift aid. It is not only the charities that could get money from the gift aid system; in some cases, the donors could, if they are higher-rate taxpayers. We have a system in which, potentially, a lot of money can be lost to the Treasury, but here you have got the requirement to be a charity—in most cases, though not all—the requirement to register, and then some further requirements, including a cap. Would the requirement to register gift aid and the cap be enough?

Sajid Javid:  While I agree that £1,250 of top-up payment could be seen as a relatively small amount, one has to keep in mind that when you are dealing with a committed fraudster who can set up multiple claims through multiple false charities, those sums of £1,250 would add up to significant amounts. That is what HMRC has to deal with when it is combating fraud.

Q 91

Sheila Gilmore: A small independent charity that wants to start using the system has to meet all those criteria, including the matching criteria, the three-year track record and so on, before they start to claim. If I have understood this correctly, however, a single church that meets the community building test, and all the other tests that go with that, can start to claim right away—up to a £5,000 donation—and get the £1,250, because the parent already meets the other requirements. Again, the onus on the independent small charities is much greater than on an organisation with lots of limbs. Is that fair?

Sajid Javid:  That might be an outcome. First, you are right to say that if you have a charitable structure—let us take the Roman Catholic Church as an example—of one single charity with multiple branches in the churches, then the requirements that you referred to, the three-year requirement and the matching requirement, need be met only once, by the parent charity. You are right to say, therefore, that—if you compare the situations—each small, independent charity has to meet that requirement. While that might be an outcome of the legislation as framed, it is not the intention to make it more cumbersome and difficult for smaller charities. The intention is simply to come up with a fair and balanced way to give an incentive to charities to use this system to boost their income while dealing with fraud and protecting the taxpayer.

Q 92

Nigel Mills: Minister, you said earlier that the Bill is there, quite rightly, to help small charities to raise money from bucket collections—from donations. The looks, however, as though it works much better as a “small charitable donations” Bill—as it says on the tin—rather than as a “donations to small charities” Bill. Is that what is intended?

Sajid Javid:  That is what is intended, yes. As you say, the Bill is to help small charities with their fundraising.

Q 93

Nigel Mills: But the Bill seems disproportionately to help larger charities with the existing processes and systems in place, while making it quite hard for those very small, local, community ones, which I think we would all like to help, because they do not have the gift aid history and that support behind them. That may be accidental, but is that a concern that you share with regard to how the Bill will apply?

Sajid Javid:  No, I do not share the concern that it is a particularly hard process for small charities. Let us take a small, independent charity that is not associated with any parent organisation: the process is actually quite simple. Remember that there will be a lot of guidance on the process and how it is going to work from HMRC. HMRC will have a free helpline; charities that need extra help during the process can get it and the guidance can be updated if it turns out that it is not particularly clear. The process of making a claim, as long as the eligibility criteria are met—the three-year requirement and the matching requirement—is by a simple form that charities will fill in. They will put their bank account details on that form, send it to HMRC and get their top-up, if it was the maximum, of £1,250 per year.

Nigel Mills: May I give you the example of a local charity for a child in need of medical treatment abroad, or an implement that one cannot get on the NHS, for which a lot of money is raised quickly by the community? I am sure that you have seen such charities as often as I have. That will be completely outside the scope of the Bill, because that money will be raised and spent and the charity gone within the three-year period. That does not seem quite consistent with what we are all trying to achieve.

Sajid Javid:  Sadly, those situations do occur and it is great when the local community comes together for them, but if the eligibility requirements were to be relaxed to deal with that type of situation, unfortunately, as well as helping people who are legitimately trying to help others, it would also open up an avenue for greater fraud. Again, as guardians of the public purse we have to find the right balance and take that into account.

Andrew Edwards:  If an individual was unwell and the local community came together to raise money for them, that would not be a charitable purpose anyway—it would not be within the gift aid scheme, for example. If an organisation is set up to benefit one individual, it would not be a charity. If an organisation already exists—set up to help sick children in the county of Berkshire, for example—it could help such a child. That would be an organisation that is already in existence, so would have been around for three years. We should bear in mind that such an example, although very deserving, probably would not qualify for gift aid, because the organisation is too narrowly focused on one beneficiary.

Cathy Jamieson: On Second Reading, the then Economic Secretary to the Treasury made it clear that she wanted the new scheme to be set up in such a way that it would not be exploited. She highlighted that,
“HMRC pays around £1 billion a year in gift aid to charities, and such large sums inevitably attract fraudsters.”
She said that,
“the generous nature of charitable tax reliefs means that they are vulnerable to exploitation”.—[Official Report, 4 September 2012; Vol. 549, c. 169.]
Can you say how many cases there have been and how much has been lost to fraud?

Sajid Javid:  I will defer in a moment to Andrew from HMRC, but HMRC clearly has a lot of information on fraud that it has gathered over the years and also has its own ways of trying to detect fraud. I hope that you will agree that there is some information that HMRC cannot share, but Andrew will be able to give some information.

Cathy Jamieson: An estimate would be helpful. We are trying to get at the scale and to try to pin down whether the proposals in the Bill are proportionate, so an estimate of the amount that has been lost to fraud and the number of cases would be helpful. Thank you.

Andrew Edwards:  Unfortunately, there is a limit on what we say publicly, but I can give you some facts and figures. For example, last year we stopped £10 million of fraudulent claims and we stopped another £30 million, roughly, of errors—those are not fraudulent, but they are still errors. You may have been aware that, as recently as 5 October an individual was convicted and locked up for five years in a joint investigation between us and the police for defrauding a charity of gift aid of £500,000. If you go to the Civil Society website, there is a report on the case. There are other cases where we are prosecuting people that are not in the public domain. We see cases of multiple applications, with organised criminals seeking to set up large numbers of what are, basically, fake charities. They flood us with applications, to get them into the system, and then start making claims. Recently, we had a case in which one organisation tried to set up 189 separate charities but, fortunately, our processors identified that and stopped the applications. If they had not, and the applications had got into the system, they could quite easily have started to make gift aid claims. Obviously, we cannot manually check every single gift aid claim we get, so there would have been a risk that some of them would have been paid. From the 189, we could have been talking tens of thousands or even millions of pounds being paid out.
I do not have an estimate of the total amount of fraud in the system, but I can tell you that last year we identified and stopped £10 million worth of fraudulent claims and £30 million worth of incorrect claims. The amount in the system is obviously more than that, but that just gives you an idea of the scale.

Q 94

Cathy Jamieson: I have a question on a slightly different point, which was referred to in the summing-up speech by the Exchequer Secretary to the Treasury on Second Reading. He suggested that reducing the three-year limit, as had been proposed during the debate, would significantly increase the cost of the scheme. Can you say by how much it would increase the cost, if the limit was reduced to two years, and to one year?

Sajid Javid:  It would most certainly increase the cost, but I do not have those numbers with me. I do not know if any of my officials have any information.

Q 95

Cathy Jamieson: Would you be able to have those numbers for us?

Sam Anderson:  It would be tens of millions, I think.

Sajid Javid:If you are after specific numbers, I can look at trying to get them for you.

Q 96

Cathy Jamieson: I think that would be helpful because the Minister said during the debate that it would increase the cost and we are trying to get the scale of things. We have talked about £10 million in fraud, and I would like to know how many millions it would take to change the scheme.

Andrew Edwards:  We can get the exact numbers, but from memory it is something like up to £30 million, potentially.

Q 97

Cathy Jamieson: May I raise one other point, for the moment? On Second Reading, it was also stated in the summing up that the basic scheme was very simple and that charities would not be required to keep records over and above what is “good practice.” Who will define that good practice?

Sajid Javid:Charities are already expected to have good practice, and there will be guidance once the Bill goes through. When we talked about fraud numbers earlier, my colleague used numbers under the gift aid system, which is, I think, the best example we have, but it is also a given that when you have a cash-based system without having a clear audit trail of people who are giving the cash, the potential for fraud will certainly increase, unless you have these kinds of eligibility criteria.
It would be unreasonable for us to ask charities for information about who made the donations—who gave what amount—but there are some good practice measures that we would expect them to have. For example, if there was a £50 note in a bucket collection, it would have probably come from just one person and would clearly not be eligible under the criteria, but if there were donations of £20 or less, it would be reasonable for charities to assume that it was not one person who had thrown in two £20 notes but that it was two separate donations.

Q 98

Tony Baldry: First, I congratulate you, because in the two and a half years that I have been involved with the Church of England, this is the first time that it appears to have agreed unanimously on anything. So well done for getting unequivocal support from the Church of England for the Bill, with no suggestion of any amendments.
Minister, you have estimated that the Bill will be worth £100 million a year for charities and sports clubs by 2015. On what basis have you calculated that? How has that calculation been arrived at, just out of interest?

Andrew Edwards:  We have looked at the current population that claims gift aid; obviously, we have had to make assumptions about how many small donations charities get, how many are within gift aid and what they would therefore be able to claim under the Bill.
We have also looked at other organisations that do not currently claim gift aid but, as a result of the Bill, might decide that they will now do so because it gives them access to the small donations scheme. We have therefore factored in an estimate of how many extra organisations will register with us and start to claim. When we add those together, we eventually get the £100 million.
All those numbers have been past the Office for Budget Responsibility, which has agreed that our estimates are reasonable. If you are interested, we could let you have the exact estimates. I do not have them in front of me, but they are made up of a mixture of how much existing charities are getting that they cannot get gift aid on and how many new charities will be attracted into the scheme.

Sam Anderson:  May I add some points to that? Obviously, we have costed the scheme and published those costings from Budget 2011. We will be revising those costings as we have made policy adjustments over the last few months in response to consultation processes such as this.
The Office for Budget Responsibility will want to test those assumptions with us. We have a process for doing revised costings around fiscal events. We would expect to explore those costings with the OBR in the run-up to the autumn statement and then release revised costings on the back of that. As my colleague was saying, we still expect the scheme to raise about £100 million extra for charities by the time it is up and running.

Tony Baldry: That is very good.
Presumably, there is going to be—Minister, you were saying this—some very straightforward advice for charities so that they can work their way through. For example, when I looked at clause 1(2), I froze because it took me back to O-level algebra. I had very little time to work this one out; it would be a challenge for any colleague. I can see quite a lot of treasurers of small charities freezing at this point:
“The amount of the top-up payment is—
…where”
R is defined as
“the percentage rate of the basic rate of income tax for the tax year in question.”
Hopefully, you will have a website, briefing and literature so that small charities in towns and villages can understand how they apply this.

Sajid Javid:  Sir Tony, with your years of legislative experience you will know that in legislation one has to be as clear as possible; if not, one is open to legal challenge and so forth. Clearly, that is reflected in the Bill.
I am very keen to make sure that the guidance that comes out once the Bill goes through is very clear and designed to help charities, and that we do not assume that charities have legal or fundraising specialists. Many of the charities that we are trying to help are small community charities involving a handful of people engaged in good work. We want to make sure that the Bill is easily digestible by them.
As well as the websites, guidance and so forth, there will be—actually, there already is—a free HMRC phone line and other sources of information. I am keen to make sure that the guidance is easily accessible.

Tony Baldry: May I turn to clauses 6 to 8, which are about community buildings? I want to make sure that I have understood them correctly. I am president of the Banbury Sea Cadets, a charity. Do I understand that the Banbury Sea Cadets will be able to raise up to £5,000 in respect of the building in which they operate in Banbury and an additional £5,000 for all donations made outside the building? Walk me through how I can make sure that all the charities I am involved with get a double-dip.

Sajid Javid:  I wish that you had not used the phrase “double dip”; I was with you until then.
The intention is that there should be a £5,000 limit for each charity. That was our starting point—but with a big exception, which was how we got into the community building rules. When we delved into those, it was clear that some charities were organised differently and had a different type of structure: in effect, with many little branches of a parent charity, but with each branch engaged in separate local community activity. One example is usually the Catholic Church, but let us say the organisation of the Church of England, which tends to have separately registered local charities.

Q 99

Tony Baldry: That is very clear. So it is £5,000 per charity—no more than that.

Sajid Javid:  It is £5,000 per charity, unless that charity has separate branches that fit within the community building criteria, in which case it is £5,000 per branch.

Tony Baldry: Thank you

Q 100

Gareth Thomas: Mr Edwards, you are the head of the charity section at the Treasury. Can you tell us how many staff it will take to implement the scheme and to manage it on an ongoing basis?

Andrew Edwards:  I am head of charities at HMRC, not the Treasury.

Gareth Thomas: Even more important.

Andrew Edwards:  There are approximately 190 of us in HMRC charities. We will get smaller over the coming years, as will all Government Departments. We are slimming down and expect that there will be about 150 of us in a couple of years. Those 150 will manage the gift aid scheme and this new scheme.
The new scheme does not require many extra staff because it is being brought in at the same time as we are introducing a new IT system for gift aid, which we have designed with this scheme in mind. For example, charities will be able to claim online. At the moment, charities have to claim by filling in a paper form, which they send us, and then we have a number of people processing those forms. That function will go and it will all be done online.
We have separate auditors and compliance staff who already do all compliance work on gift aid. As part of that, they will do audit and compliance work on this small donation scheme. Because of the way the scheme has been designed to mesh with gift aid, it can be administered almost as a part of gift aid. Yes, there are pressures and there will be extra things that we need to do for which we do not have extra resources. We will have to absorb those and deal with them as part of our day-to-day work.

Q 101

Gareth Thomas: You are clearly very concerned about the level of risk of fraud. Presumably, as a result of your worries that affected the way in which you designed this scheme, you had a look at the Awards for All scheme run by the Big Lottery Fund and advised Francis Maude and other Cabinet Office Ministers that they needed to tighten up the eligibility criteria for accessing that scheme, because they are substantially less tight than those that you appear to propose to implement under this scheme.

Andrew Edwards:  If the national lottery or the Big Lottery Fund want to ask us for advice, we will willingly give it, but we have not given that advice. That scheme is different, and I do not know enough about it to know how it is run, what criteria are applied and what the fraud risks are. The way we operate gift aid is on a risk basis. We have various triggers looking for the riskiest things. Fraud is a problem. Typically there are two sorts of fraud. There is fraud within an established charity that has been around for a long time. That is a bit like the one I referred to earlier—

Q 102

Gareth Thomas: Forgive me for interrupting, Mr Edwards. So there was no joined-up Government thinking and no attempt to look at best practice. Regarding this sum of money—£1,250 maximum for charities—nothing was done to look at what else other Government Departments allowed to happen to make the impact on the small charity that might apply proportionate.

Sajid Javid:  May I come in on that, because there is joined-up Government thinking. As I understand the scheme that you cited as an example, it is a subjective scheme in which there is a decision-making process about what payments are made to what charities. This is an objective scheme—a rules-based scheme—so there is no limit to the number of charities that can take advantage of it. As long as they meet the rules, they can benefit from the scheme. I think that you are comparing two entirely different systems.

Q 103

Jeremy Lefroy: I welcome this excellent scheme, which has been a long time coming and will do a great deal of good. I talked earlier about the number of people coming out of income tax over the next couple of years as the allowance is raised. Has a calculation been made of the reduction in the gift aid that might be claimed as a result of people who were taxpayers no longer being taxpayers, and hence no longer being eligible for gift aid reclamation?

Sajid Javid:  I am not aware of such a calculation.

Andrew Edwards:  We have figures for gift aid over the years, and it has continued to grow even though the personal allowance to which you are referring has gone up. However, looking forward, we have not done any modelling.

Q 104

Jeremy Lefroy: As a supplementary to that, have you done any calculations on how much additional gift aid you expect to be reclaimed on the back of the fact that many charities will begin to look at registering to reclaim gift aid as a result of this system?

Sam Anderson:  We have made some assumptions around behavioural change, which is what you are talking about—more people taking up gift aid than would have been the case without this scheme. At the moment, as I said earlier, we are testing those assumptions with the OBR, and they will be dealt with through the autumn process.

Q 105

Jeremy Lefroy: What sort of order are we talking about? Would you be looking at perhaps an additional 50% on top of what this scheme will generate that will go to charities.

Sam Anderson:  That sounds rather high, but I am a bit reluctant to comment in more detail until we have been through it properly with the OBR.

Q 106

Jeremy Lefroy: But you certainly expect some form of increase in the amount of gift aid reclamation purely because of this scheme?

Sam Anderson:  As it is an additional incentive and it is worth money to charities, it is reasonable for us to assume that there would be some additional gift aid applications resulting from it.

Q 107

Fiona Bruce: On Second Reading, I raised concerns about the fact that hospices, which rely largely on donations from the public, would be excluded from benefiting due to the community buildings restriction on residential use. Has the Minister given that further consideration?

Sajid Javid:Yes, I have given it consideration, so I hope that I can clarify the situation. The residency issue around community buildings does not really apply to places such as hospices—or hospitals for that matter. They are places of care. Far more often than not, when someone sadly has to go into a hospice or a hospital, they maintain their own residence. They will be at the hospice for only palliative care and, as far as we are concerned, that is not their residence and therefore the residence restriction would not apply.
You raise a fair point, because it goes back to the point about trying to be clear in the Bill and also trying to clarify legitimate questions of the kind that you raise. That is why we are keen that such issues are also made clear through the guidance.

Q 108

Fiona Bruce: That is very helpful.
In your report on the public reading stage, you confirmed that not every building in which a charity operates will be classed as a community building and that decisions will need to be taken on a case-by-case basis. A little earlier you said that the guidance needs to be as clear as possible. Particularly with the increasing elderly population, will the distinction blur between a hospice and a care home run by a charity for those who are coming towards the end of their life? How can you ensure that we do not end up down the road of unwelcome disputes or even costly litigation on this issue?

Sajid Javid:  It is fair to say that we intend to monitor that situation carefully. When interpreting the Bill, there will be some element of not discretion, but common sense. If guidance needs to be made clear or adjusted over time, that can be done.

Q 109

Susan Elan Jones: I am delighted to hear that you managed to catch the £500,000 fraudster. However, could you tell me whether that fraudster had made successful gift aid claims?

Andrew Edwards:  Yes.

Q 110

Susan Elan Jones: Does that not therefore prove that the fraudster would have got through initially under these criteria, whereas small charities that have not made gift aid claims will not?

Andrew Edwards:  As I was saying earlier, we see two sorts of fraud. There is the fraud when someone infiltrates an existing charity and makes fraudulent claims, as in this particular case, but the much more common one is when fraudsters seek to set fake charities. They will download from the internet a basic charity constitution, send it to us and claim that a charity has been set up. You have to approach those two examples in a different way. If you have an established charity that is basically good, but has been infiltrated by someone who is basically bad, we need to try to identify that person and limit the damage they can do. In the other cases, which are basically a complete sham, we seek to shut the door and not let them in at the start. There are two different sorts of fraud that we have to approach them in two different ways, but that does not necessarily mean that, as a result, genuine small charities will be disrupted. It is true that a new small charity that is set up will have to wait three years before it can join the scheme, but any new charity that is set up will have to wait three years.

Q 111

Susan Elan Jones: But, effectively, a clever fraudster could probably claim gift aid, so in a sense that is my answer.
May I raise a further point that was made on Second Reading by a Conservative Member, Mr Stewart of Milton Keynes South, about a talking newspaper charity that was set up by his father? Mr Stewart said that the charity was very small, and that if it raised £1,000 a year, it was doing well. He said that many of the people who gave to it had visual impairments, and that while it was a free service, many people made donations of £5, £10 and so forth. He said that many donors were elderly and therefore
“not the kind of people who generally fill out gift aid forms.”
He went on to say:
“I do not know whether the charity my father set up…has ever claimed gift aid, but I suspect that it has not. Therefore, it would not be able to take advantage of the proposed scheme for three years.”—[Official Report, 4 September 2012; Vol. 549, c. 194.]
There really are stories like that.
I suspect that there is a major difference between the types of fraudsters. While it is clearly something that needs to be investigated, I suspect that it is not difficult to get through the gift aid criteria and claim—you would have to be a fairly stupid fraudster if you could not do that. However, what about small community groups such as the one that Iain Stewart mentioned? Should not they not be eligible for this scheme?

Sajid Javid:  To go back to your first point, you may be saying that the fact that there is already fraud going on with gift aid shows that someone could get into this system, but there will always be fraud under any of the tax rules. There will always be committed fraudsters out there who want to do wrong. You are not going to invent a system of checks that will eliminate fraud 100%—that is just a fact of life. If your goal was to eliminate fraud 100%, you would wrongly end the ability for legitimate users to take advantage of this scheme, and clearly that is not our objective. Our objective is to strike the right balance by creating incentives for small community charities and giving them a financial boost through this top-up system while trying at the same time to eliminate fraud as best as we can. Even with the rules that we have, we are not pretending for one second that fraud cannot happen. Clearly that is not possible, because a committed fraudster can try many ways and go to great lengths. Our job is to ensure that the hurdles are high enough to eliminate a lot of fraud, but not so high that they prevent legitimate charities from taking the benefit of this.

Q 112

Susan Elan Jones: But surely unless this is considered—this is the point that Mr Stewart and others have raised—very small charities and community groups will be at a disadvantage under the scheme. While I really welcome what the Bill will do for churches—it will be extremely beneficial—there are clearly small charities that will be at a disbenefit under it.

Sajid Javid:  It is wrong to say that they will be at a disbenefit. It will not make their situation worse. Your point is that the Bill will not help the type of charity that you describe, but I think that you would accept that if the rules were changed to allow such a charity to benefit—that could be a relatively new charity, or such a small charity that it had no history of using the current gift aid process—it would open up the scheme to everyone, which would allow the fraudsters to benefit significantly as well. I think that you would agree with me, as a guardian of the public purse, that we have to strike the right balance.

Susan Elan Jones: Yes, but I do not think that that is it.

Q 113

Mary Macleod: Minister, a number of witnesses have told us that charities will benefit from this, but they also suggested a few changes. It was said that we now live in a digital age. Was any consideration given to other ways of raising money, such as the use of credit cards or texting? A small charity might use such methods because they are easy.

Sajid Javid:That is a good question, and consideration was given to that. To answer the question we really have to look back at the starting point of the Bill and why it was introduced in the first place, which was to deal with the issue of charities, especially small charities, receiving cash donations when the people making those donations were not, for various reasons, filling in the forms that would be necessary to go through the gift aid process and get a financial boost. When there are some types of non-cash donations—it could be the use of credit cards or cheques, and we have heard mention today of using Oyster cards—you are already, by moving away from cash, establishing a relationship that is not that far removed from the gift aid process. For example, if someone is willing to use a credit card, cheque or even a text message, the use of that process means that the information is already there, so it is not too far removed from the current gift aid programme. Although that will bring the same financial benefit to the charity, a donor in a higher tax bracket using gift aid would have a higher financial benefit, which may mean that they would give more than they otherwise might. It is the existence of that extra information using the alternative payment methods that has made us think that we should really be focused on cash donations.
Let me give you an example. I recently had a discussion with a representative from one of the large mobile phone companies in the UK, who said that under the company’s text message system for charitable donations, once someone uses their phone to make a donation, which the company makes as easy as possible, it only requires one more text to confirm that they are a UK taxpayer. When that has been confirmed once—and only once in an entire calendar year—the phone company will use that information for all other donations to registered UK charities, so the gift aid system will automatically kick in. That is an example of how certain methods can benefit from the gift aid system. We did not think that such an approach was necessary under the Bill, and it would move away from the objective, which is to deal with small cash donations.

Q 114

Mary Macleod: One of the issues that was raised earlier today was the three years. Did you, in your analysis of this, see a big difference between two years and three years, and why did you discount two years? I believe that there should be some history of the gift aid process, but why is it three years?

Sajid Javid:  When we decided—the difference between three years and two years is not just fraud; there is also a difference in terms of the cost to the Exchequer, which we clearly need to manage as well—we looked at both the cost to the Exchequer of making the scheme more generous and the potential increase in fraud. It was our judgment when we put the two together that the right balance was three years.

Q 115

Penny Mordaunt: I want to touch on a couple of issues that came up in the previous evidence sessions. The first is about charities that do not have a diverse fundraising portfolio and that are largely reliant on tin-rattling falling foul of the three-year criteria, and the second was about the missed opportunity of encouraging small charities to take the leap and get involved with gift aid. It has been a trend in the sector over the past few years to almost discourage those very small micro-charities being set up. Rather than a family that has lost a child to a particular disease setting up a charity in their name, they are contacting a larger existing charity and founding an appeal in their name or funding their research programme.
I do not necessarily want to present those negatives as an upside, but it strikes me that there might be an upside. Have you thought about how this will affect some of those charities being set up and whether they are set up as individual charities, or whether this would act as an incentive for them to not be set up, but for those people instead to approach other charities that might be able to make use of this and other schemes? Did you have any thoughts about that when you were creating the Bill?

Sajid Javid:  We did. These kinds of behavioural changes, by their very definition, are hard to predict. If I understood you correctly, one of the behavioural changes that you are predicting is that because branches of a single charity do not have to meet the individual requirement of the three-year criteria and the matching criteria, it may encourage some charities to have more of a branch structure going forward, rather than setting up individual separate charities.

Q 116

Penny Mordaunt: And for charities that might be set up in the future. I am thinking particularly of things such as medical research, where, in an effort to get more bang for the cause that many charities might be working towards, the sector tries to get them to be part of a larger organisation, rather than there being other organisations set up, particularly at a local level, that compete. That would benefit from your reform.

Sajid Javid:  That is a good observation. If that were the case, there is no problem with that, because the primary reason for the eligibility criteria is not to reduce the number of charities that can take advantage of this legislation but to deal with the fraud risk. Say an existing charity has set up a new branch. That branch, by definition, although it has to meet the community building criteria and other criteria, would not have to meet its own criteria in regard to using gift aid in the past. That is not a problem, because we want to encourage greater charitable activity through the Bill and we want to give that financial boost. The primary reason to have those rules around gift aid is to deal with the risk of fraud. The example that you presented, as I understood it, does not increase the risk of fraud.

Q 117

Mark Durkan: Before I ask more practical questions about the Bill, I want to ask for some clarification or reconciliation between two earlier answers. We were told that the estimated cost would be £100 million and that those estimates would go to the OBR and so on, so we were told that that had been factored in and we did not need to hear the details. Subsequently, however, when the question was asked about what the consequence was of the cost in relation to gift aid—what extra cost there would be in terms of gift aid—we were told that that had not been factored in and that there were no costs available. If it is going to be £100 million extra cost, surely that does take in the extra cost to gift aid. If these charities are going to be claiming this money if they are also claiming gift aid, is the gift aid extra to the £100 million or is the gift aid a known sum within the £100 million?

Sajid Javid:  I can clarify that. The £100 million number, which is the benefit, we think, to charities once this scheme is up and running, was based on the original Bill as you see here without the Government amendments that we have recently tabled. We have not yet published the number once these amendments go through, because they add greater flexibility of certain definitions and we expect that will lead to additional cost for the Government. We cannot publish a number on that yet, because, as is normal practice, before we publish a number we have to run it past the OBR to verify it. Once that is done, we will publish that number.

Q 118

Mark Durkan: Yes, but as long as the Bill has been in existence, participation in and receipt of gift aid has always been the qualifier for—

Sajid Javid:  As a result of this legislation, any—

Mark Durkan: So the £100 million is not just for top-up payments? It includes top-up payments and extra gift aid.

Sam Anderson:  The £100 million is a net figure, so it takes into account what we thought would happen at the Budget. There is a lot going on here. You can have people claiming less gift aid and more small donations; you can have people claiming more gift aid because they are incentivised into the scheme and you can have people claiming more gift aid because of the matching requirements. So just to take a step back, at the Budget we costed a model that was much more basic than the shape we now have the policy in. It is much better developed. Not all the factors that I just mentioned were fully taken into account in the costings we published earlier, but they will be taken into account in the new costings. So the matching requirements, for example, will be taken into account.

Q 119

Mark Durkan: I still think there are big questions around the £100 million figure on the basis of all we have heard. Sticking with the issue of gift aid as the qualifier, I accept that the Government need to scam-proof any generous measure that they are introducing, including those in relation to small charities. But why do you see gift aid as being the only verifier that there can be in relation to charities? There are bona fides and donations. Are there not other ways of verifying this other than gift aid?

Sajid Javid:  One can suggest other ways. We have looked at various ways and we think using HMRC’s existing data assistance that they have developed over the gift aid programme is the best way. There are lots of reasons for it; the main reason is that if you go back to the genesis of this Bill, it was all linked with gift aid. It was where people were making small cash donations to charities that were not able to provide the information required for the gift aid programme, so this was seen as a scheme that complemented gift aid. As such, it makes absolute sense to link it to the current gift aid system and to have it administered by the same group of people.

Q 120

Mark Durkan: There are many local charities that we know have not historically participated in the gift aid scheme, partly because of the nature of the areas in which they worked. The population from whom they would draw a lot of their income were not going to be people who would be interested in applying or able to apply for gift aid. We also hear from some charities that there is a bit of a switch-off with gift aid, not just because of the form-filling but because people start to suspect that once they fill in a form and give their details for gift aid they will then be hit with raffle books coming at them through the post and that all sorts of other demands will be made on the back of the information that is yielded to charities for gift aid. There are lots of different reasons why either charities or donors are averse, to one degree or another, in relation to gift aid.
Insisting to charities that in order to benefit from this scheme they have to go down the route of gift aid when it may not be particularly feasible for them seems onerous. It is one thing to put in qualifying criteria, but when those criteria have the effect of disqualifying bona fide charities that we all know, surely we as legislators have a duty to try to come up with a better way through for those charities.

Sajid Javid:  I think that your principle is correct and it is well-intentioned, but I think you would agree that as legislators we also have a duty to help to protect the public purse. It might help if I gave some numbers about the charities that would benefit from this legislation. Again, we do not know exactly yet and we will not really know until the legislation is in place, but according to the Charity Commission there are about 180,000 charities in the UK. Of those, about 100,000 are already registered on HMRC’s database and of those 100,000 about 65,000 claim gift aid each year. That is a substantial number of charities.

Mark Durkan: Of the 180,000 charities, that is just over a third.

Sajid Javid: It is, but there are 100,000 charities that are registered with HMRC in its database, which is more than half of all the charities. Of those 100,000, approximately 65,000 claim gift aid each year, because some charities use the gift aid system but they do not use it each year.
You would be right to say that there are some charities that are maybe too small—such as the example that you gave—and where they do not register for gift aid, have never used it and they would not be able to benefit from this legislation. They will not be any worse off; they just will not be able to benefit from this legislation. However, I hope you would agree that the legislation is a great starting point, and that there are thousands and thousands of charities out there that will be able to benefit from it.
Also, when the Government first introduced this legislation, or first talked about it, they made it clear that they will review the operation of the legislation after three years. I think that that would be a good time to look at exactly how it has worked out, and at the pattern of use in terms of charities that are already registered for gift aid and that are using this scheme, but also to see if it has encouraged charities to use the gift aid system. I hope that you agree that it is sensible to have a review period and I know that you will still be here when the legislation is reviewed and that you will have another opportunity to raise some of these excellent issues.

Q 121

Mark Durkan: But just on that point, in committing to the review, would you accept a review clause in the Bill?

Sajid Javid:  We will not accept any more clauses in the Bill, other than the ones that we ourselves have suggested. I do not think that it is necessary to have a review clause in the Bill. The Government have already said, as I believe is standard practice for new tax legislation, that we would review it after three years. I think that was what was done under the previous Government as well.

Andrew Turner: Under Standing Order No. 83C (11), I have the discretion to allow the questioning of the last group of witnesses at an afternoon sitting to continue for a further 15 minutes. Therefore, we shall continue until 5 pm.

Q 122

Cathy Jamieson: Will the Minister explain the rationale for Government amendment 6 to clause 6, which he tabled, regarding who is eligible to be considered as a “group member”?

Sajid Javid:  Just to be clear, are you referring to the definition of “charitable activity”?

Q 123

Cathy Jamieson: I would like to probe the issue of charitable activity, but I wondered why there is that specific amendment. Just to be helpful, the explanatory statement says:
“This amendment, and amendments 4 and 5, have the effect that small donations collected in community buildings do not count towards the “community building amount” for the purposes of clause 6 unless they are collected from persons with whom the charity is carrying out the charitable activity.”
In lay person’s terms, could you explain what that actually means? Who is able to donate, and who is not, for the purposes of the top-up payments?

Andrew Edwards:  I will cover that. We identified a problem with the previous legislation in that, for example, it would have been possible in a large building for a meeting to take place that qualified the building as a community building—in other words, the 10 people were meeting in accordance with the legislation—but for a collection to be going on in a separate part of the building that would qualify under the Bill. That was not the intention, so, while making a few changes to the rules, the amendment clarifies that the collection has to be made in the meeting. The meeting that qualifies the community building as a community building, where the beneficiaries come together to benefit from the charitable activities of the charity, is the place where the money has to be collected.

Q 124

Cathy Jamieson: So, just to be absolutely clear, if the meeting, the charitable activity, is taking place among the 10 members and someone else in the building happens to think, “That is an excellent charity, and I would like to give them a tenner,” that tenner does not count for these purposes?

Andrew Edwards:  That depends on the structure. We are just talking about the community building element. You have to remember that every charity has a £5,000 allowance. Some can also claim additional amounts for the community building. That tenner would probably qualify for the £5,000 national allowance, so it might qualify depending on the number of other donations.

Q 125

Cathy Jamieson: May I ask another question?

Andrew Turner: So long as it is not too specific, because we are meant to discuss general issues now.

Cathy Jamieson: I will try to make it general. The question is on the definition of people who are the beneficiaries of activities. Will the Minister or officials explain again—sorry, this perhaps does veer into the specific clause, but I think it is important to probe some of this.

Andrew Turner: You will normally have an opportunity to do that later in the week.

Q 126

Gareth Thomas: How will you deal with charities that make mistakes, as opposed to fraud? A couple of subsections of clause 2 refer to penalties. Will you talk us through the process that you might use to judge whether someone has made a deliberate error, veering towards fraud, or an innocent mistake?

Andrew Edwards:  There are a number of examples. Frequently, when a charity makes an error it will realise and write to us or phone us and say, “I’m really sorry, but I’ve made an error. Can I correct it?” It might be that we spot an error when we are checking one of the claims in an audit and, after discussing it with them, it is clear to the HMRC officials that it is a genuine error. There is an element of judgment here. Again, it depends on the nature of the organisation and the people you are dealing with, but HMRC likes to think all its customers are compliant and want to comply. Our starting point is to assume that they are compliant and want to comply, unless we identify evidence to the contrary. If during the course of that questioning, or during the course of examining the records, it becomes clear that it does not look like an error, it moves into the fraud arena.
Based on the numbers I gave you earlier, it is obvious that we treat most things as error, not fraud. On the whole, our customers are compliant and want to get it right, and if they get it wrong, they are open and honest about it: they tell us about it and we put it right. It is very easy for them to do that. The numbers who actually pay a penalty at the moment are quite small, and we anticipate the numbers who would pay a penalty in the future will be very small. You do not pay a penalty if there is an innocent error; you only pay a penalty if there is, for example, an element of fraud or a deliberate mistake.

Q 127

Gareth Thomas: That space between deliberate error and genuine mistake is sometimes contested. How do you allow independence of judgment in that process? Is it just a matter of how you feel when you wake up in the morning, Mr Edwards, when one of your staff brings an example to you, or do you go to a Minister or talk to others who give money to charity? How do you reach that judgment and allow someone to have a genuine review?

Andrew Edwards:  We have a number of internal processes whereby people can object or complain about a decision. If a decision has been made, and the charity disagrees, it can ask for it to be reviewed internally, or by a more senior person. There is a formal appeal process whereby it can ask a tax tribunal to intervene, or it can go to the adjudicator’s office. Some charities may raise the matter with the Minister but obviously, for reasons of taxpayer confidentiality, we cannot do that first. Generally speaking, there are a number of internal review methods or formal review methods, such as tax tribunals, that allow people to appeal or to ask for a review if they are unhappy.
We do not end up there very often, because most of the time we work with customers. Most of our customers are honest, and we work with them to come to a compromise, or we agree the best way forward. Our emphasis is always to make sure they do not make a mistake in future. Yes, we have to put right what happened in the past, but we like to ensure that they put in place a process to stop a future error. That is what our focus always is.

Q 128

Mark Durkan: I represent a border constituency. It is not uncommon in Northern Ireland for various churches, not just Catholic churches, to have cross-border parishes, and many local charities have cross-border engagements. Some do not, but in the course of their collections they may have euros going into the tin simply because many of my constituents go over the border for family and other reasons, such as buying petrol and diesel and often that is the currency they have to hand. Will there be an issue or problem for charities about what counts as a cash donation? People may have to consider the denomination of the notes and whether they are £20 or £50 notes, but will there be an issue about whether the currency is sterling or another currency?

Sajid Javid:  You can give in any currency, but clearly the limit of £20 or the equivalent still applies. You gave a very good example, and I am sure it is prevalent in that border area. The total cap of £5,000 will be the amount that HMRC takes when looking at what the sterling balance is when it has been banked.

Andrew Turner: If Members have no further questions for the Minister, we conclude our business for this afternoon. The Committee will sit again for clause-by-clause consideration of the Bill at 11.30 on Thursday in Committee Room 9.

Ordered, That further consideration be now adjourned. —(Greg Hands.)

Adjourned till Thursday 18 October at half-past Eleven o’clock.